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Assessing welfare impacts of some debt-consolidation episodes in the European Union

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  • Miguel Viegas

    (GOVCOPP, DEGEI, Universidade de Aveiro)

  • Ana Paula Ribeiro

    ()
    (Faculdade de Economia da Universidade do Porto and CEF.UP)

Abstract

This paper aims at characterizing debt consolidation processes put forward by some European countries in order to assess welfare and, in particular, the inequality effects involved. For that we built a general equilibrium heterogeneous-agent model capable of exploring the relationship between fiscal policy variables and the endogenous crosssection distribution of income and wealth. Results show that, with the exception of the Belgian case, all consolidation strategies entail positive welfare gains. The transition costs affect all episodes and are determinant in sorting among the welfareenhancing strategies. Our results confirm the superiority of the adjustments based on unproductive expenditures over those based on tax increases or social transfer reductions. Finally, all strategies involve lower welfare inequality costs.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 1106.

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Length: 34 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:por:cetedp:1106

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Keywords: fiscal consolidation dynamics; European Union; heterogeneous agent model; inequality; welfare.;

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  1. Aiyagari, S. Rao & McGrattan, Ellen R., 1998. "The optimum quantity of debt," Journal of Monetary Economics, Elsevier, Elsevier, vol. 42(3), pages 447-469, October.
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  5. Miguel Viegas & Ana Paula Ribeiro, 2011. "Welfare-improving Government Behaviour and Inequality - Inspection Using a Heterogeneous-agent Model," CEF.UP Working Papers, Universidade do Porto, Faculdade de Economia do Porto 1103, Universidade do Porto, Faculdade de Economia do Porto.
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